Budget 2026: The Art of Doing Three Hard Things at Once

The most striking feature of the 2026–27 Union Budget is its unsentimental commitment to fiscal consolidation. The fiscal deficit has been trimmed—marginally, critics will say—to 4.3% of GDP, down from 4.4% in 2025–26. By itself, that reduction may appear modest. In context, it is anything but.

This tightening has been achieved without sacrificing historically high levels of capital expenditure. That combination—deficit control alongside sustained public investment—is rare, and rarer still in a political environment where governments typically choose only one of three paths: populist spending in election cycles, fiscal repair during crises, or capex-led growth in calmer times.

To this government’s credit, it has managed to walk all three paths simultaneously for more than a year now.

Growth with stability, not instead of it

The outcome has been a pairing most economies currently envy: growth with macroeconomic stability. The Budget’s explicit commitment to bringing the debt-to-GDP ratio down to 50% ±1 by 2030–31 signals that fiscal prudence is not rhetorical, but structural.

There is urgency behind this discipline. Interest payments in 2026–27 are budgeted to rise by 10% over 2025–26, a reminder that debt servicing crowds out developmental spending. Compressing this outgo is not ideological. It is arithmetic. The faster interest costs fall as a share of expenditure, the more room the government gains for growth-enhancing investment.

Encouragingly, the primary deficit is expected to halve, dropping to 0.7% of GDP in 2026–27 from 1.7% in 2024–25 (actual). That trajectory matters more than headline deficit numbers/ It shows consolidation is coming from the right end of the balance sheet.

The tax puzzle

The one soft underbelly in this story is tax revenue growth. Over the past three years, gross tax collections have been underwhelming. At 11.2% of GDP, projected gross tax revenue in 2026–27 is actually lower than in 2025–26.

Paradoxically, India’s success in crushing inflation has played a role here. Lower-than-expected nominal GDP growth in 2025–26 translated into weaker tax buoyancy. The Budget now assumes 10% nominal GDP growth, a reasonable but not risk-free bet.

Welfare is being recalibrated

Despite persistent claims to the contrary, this Budget does not axe welfare. In fact, it reinforces it.

The newly introduced VB-G-RAM-G scheme, replacing MGNREGA, carries an outlay of ₹95,692 crore, while the programme component of MGNREGA that continues into 2026–27 is allocated ₹30,000 crore. Combined, that’s ₹1.26 lakh crore, significantly higher than the ₹88,000 crore budgeted for MGNREGA in 2025–26.

This pattern holds across welfare programmes, most of which have seen substantial increases. In a low-inflation environment, these increases represent a real expansion of welfare spending, not cosmetic protection.

So, how is the circle being squared? How does the government manage higher growth push, fiscal consolidation, and elevated welfare simultaneously?

Part of the answer lies in higher borrowings, some drawdown of cash balances, and a careful calibration between market loans and interest obligations. These are numbers that quietly tell their own story.

But the deeper answer is governance. Better targeting, tighter expenditure control, and ensuring that money is spent for the purposes it is intended have created efficiencies that no headline number can capture.

Why this Budget matters now

India is attempting something unusually ambitious: growing rapidly in a world where growth is fragmenting. Trade is no longer a consensus good.

Protectionism is back in fashion. The world’s two most powerful economies are either turning inward or aggressively cornering markets.

In this environment, India’s growth must be domestically generated. This Budget recognises that reality. Capital expenditure is at a historic high. Welfare spending remains elevated to preserve social stability. And macroeconomic discipline anchors long-term sustainability.

That combination is rare and fragile.

This Budget isn’t flashy. It doesn’t rely on giveaways or gimmicks. It does something harder. It pushes growth without breaking stability, supports welfare without losing discipline, and invests for the future without mortgaging it. In an increasingly hostile global economy, that balance may be India’s greatest advantage. This isn’t just prudent budgeting. It’s India’s Goldilocks moment: neither too hot, nor too cold, but precisely right.